The Open API Is Dead. Long Live the Open API.
In three short years, Cursor went from a VS Code fork running on OpenAI’s API to a legitimate competitor to Claude Code and other coding models.
So why, exactly, should companies leave their APIs open if their code will ultimately be used against them? That problem is particularly acute in AI, where companies like Cursor can use frontier models’ APIs to gather data that improves their own models. Daniel and Elijah argue that API providers in such a bind really have just two options. Read on to see what they are.
After that, we’ve got other interesting posts for you to catch up on:
Elijah makes the case for onchain options.
Caleb explains why the next neobank boom might just come from the companies that pay you.
Daniel explores new ways to fight crypto and AI fraud, then looks at business models with better moats.
Plus: new investments, open roles, and where to connect with our team.
Enjoy!
The API War
Daniel Barabander & Elijah Fox
In early March, Cursor shipped Composer 2 — a proprietary coding model (built on an open weight base model) that beats Claude Opus 4.6 on key benchmarks at one-tenth the price. Three years ago, Cursor was a VS Code fork running entirely on OpenAI’s API.
Cursor’s shift from a dependent customer to a genuine competitor is a microcosm of the most important strategic question on the internet: When should a company expose its capabilities through an API, and when should it keep them closed?
We’ve developed a framework for answering this question. It comes down to two things. First: Does opening up your API erode your moat? And if it does: Can you find a moat elsewhere?
Anytime a company externalizes its IP through an API it risks at least some of its moat through demand aggregation. Basically, a competitor can use the IP to bootstrap its own product, and once it has sufficiently aggregated demand, vertically integrate by ripping out the API. This is what Netflix did by first licensing shows/movies and then, once it had a sufficient customer base to amortize a large fixed cost over, it produced House of Cards.
But the truly dangerous case is when the output of the API can be used as an input to directly compound the quality of a competing product.
More Recent Reads
Ideas and perspectives from the team
Daniel Barabander
Crypto and AI combined have made the unit economics of fraud more attractive to con artists. But the industries are also building fraud prevention and recovery methods far more sophisticated than anything seen in traditional finance. Watch out, fraudsters.
Daniel Barabander
ChatGPT and co are collapsing information moats by forcing previously walled gardens to connect. If tech companies can no longer rely on information scarcity for their business model, what can they rely on? Daniel Barabander has an idea.
Elijah Fox
Elijah has noticed a bias toward perps over onchain options. While perps are great, he sees options adoption picking up because they fill a need that perps can’t.
Caleb Shack
Stablecoins have made it simple for companies to offer checking and savings accounts, leading to a wave of crypto-forward neobanks. Caleb thinks another wave might be coming — from social networks and gig-economy platforms.
Firm Announcements
Highlights and important info
Variant invested in Swoop, a super app for Africa.
Variant is hiring for an AI lead. Come work with us!
Thinking in Public
Recent posts from Variant’s policy team
Jesse talks quantity v. quality in a thread:
Alana is concerned about AI tools’ business model:
Caleb has a business idea:
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the API war framing matches the demand-aggregation playbook we see in our database. your view from variant would be a great cross-reference to what we track across across 600+ VC newsletters